US dollar rally pushes Euro lower and threatens Aussie

May 26, 2014

The Euro continues to fall under the weight of a weak economic outlook, US dollar strength and the looming ECB change in policy toward quantitative easing.

As the chart below shows the Euro is now trading below the 200 day moving average and the bias in the days and weeks ahead is for a test of the 2014 low of 1.3475.

The weekly charts suggest a similar outlook.

Likewise the Aussie is under pressure and while it is holding in at 0.9234 which is almost exactly in between the 90-94 range that has dominated trade over the last month or two. There is nothing locally to shake it from its torpor but a note from Westpac suggests that any strength will prove ephemeral and that the Aussie should be lower by year’s end.

Looking at the chart above it seems clear the Aussie is likely to test 0.91650/70 sooner or later. This is the 200 day moving average zone and a break would signal a deeper retracement.

Turning back to markets on Friday the big news with the S&P 500 closing above 1900 for the first time on Friday. Sure the close was a “just over” close with the S&P finishing at 1,900.53. But the nine point gain was pretty solid. The Dow closed up 0.38% to 16,606 and the Nasdaq was 0.76% higher to 4,186.

Key to the rally seems to be the recovery in housing that so worried Janet Yellen a few weeks back with data on Friday showing that new home sales rose 6.4% to 433,000. No doubt a little position squaring before the Memorial Day holiday today might have helped as well.

In Europe the FTSE was largely unchanged down 0.07% t 6,816. On the Continent however the DAX rose 0.48% to 9,768, the CAC in Paris was up 0.33% to 4,493 while in Madrid stocks rose 0.36%. In Milan stocks surged 1.83%.

The election of the Petro Poroshenko “the Chocolate King” as President of Ukraine should be good news for Europe tonight given that he has in the past worked with both sides of the current divide. He said “My first decisive step will be aimed at ending the war, ending chaos, and bringing peace to a united and free Ukraine…I am certain that our decisive actions will bring fairly quick results”. The world hopes so – although Oil longs may not be so sure.

Locally the ASX Futures market was fairly quiet but the June SPI 200 contract is up 3 points to 5,513 bid.

As noted above the Euro and Aussie remain under pressure and the USDJPY sits at 101.96 again this morning after finding a low last week while the Pound remains strong at 1.6836.

On commodity markets June Nymex Crude is at a worryingly high level for global growth closing at $104.39 on Friday. Gold is largely unchanged at $1,293 while silver sits at $19.37. Copper is also higher – no doubt benefiting from the better Chinese data recently – and it sits at $3.17 this morning. On the Ags corn rose 0.26%, wheat fell 1.02% and soybeans were 0.21% lower.

On the data front it is going to be very quiet with nothing of material import to be released other than German Gfk confidence in the next 24 hours. It is Memorial Day in the US and Bank Holiday in the UK so the two big markets will be out and trade will be light today.

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